Belenzon, Chatterji and Daley (2017) find that eponymy-firms being named after their owners-is linked to firm...

 

Transcribed Image Text:

Belenzon, Chatterji and Daley (2017) find that eponymy-firms being named after their owners-is linked to firm performance. The baseline specification in their paper takes the form ROAita Eponymousit +ZitB1 + ... + Zait Ba+nj + T₂ + cc + U₁ where the indices i and t denote firms and years, ROA,, is return on assets, Eponymousit is a binary indicator variable that takes the value of one if firm i's name in year t includes the name of owner and zero otherwise, and explanatory variables Zlit ..., Zdit include time- varying controls for log of assets, log number of shareholders, equity dispersion, and u,, is a regression error term. The variables n, T, c are complete sets of three-digit standard industrial classification (SIC) codes, country, and year dummies. The total number of observations is more than 6 million and there are more than 1 million firms in the data for the period 2002-2012. (a) [5 points] Belenzon, Chatterji and Daley (2017) propose a signaling explanation for the eponymy-performance relationship. They argue that eponymy creates a stronger association between the entrepreneur and her firm that increases the reputational benefits of having the market hold a favorable impression of the quality of her firm. Consequently, they infer that high-ability entrepreneurs are more drawn to eponymy than are low-ability ones. Based on this explanation, what is your prediction on a₁? Explain briefly. (b) [5 points] Given the information given above, do the authors of the paper have balanced panel data? Explain briefly. (c) [5 points] In the basic specification, there is no firm fixed effect. In the data, only 0.3 percent of firms change their eponymy status during the sample period. Can you conjecture why the authors did not include the firm fixed effect in their basic specification? Justify your answer. Belenzon, Chatterji and Daley (2017) find that eponymy-firms being named after their owners-is linked to firm performance. The baseline specification in their paper takes the form ROAita Eponymousit +ZitB1 + ... + Zait Ba+nj + T₂ + cc + U₁ where the indices i and t denote firms and years, ROA,, is return on assets, Eponymousit is a binary indicator variable that takes the value of one if firm i's name in year t includes the name of owner and zero otherwise, and explanatory variables Zlit ..., Zdit include time- varying controls for log of assets, log number of shareholders, equity dispersion, and u,, is a regression error term. The variables n, T, c are complete sets of three-digit standard industrial classification (SIC) codes, country, and year dummies. The total number of observations is more than 6 million and there are more than 1 million firms in the data for the period 2002-2012. (a) [5 points] Belenzon, Chatterji and Daley (2017) propose a signaling explanation for the eponymy-performance relationship. They argue that eponymy creates a stronger association between the entrepreneur and her firm that increases the reputational benefits of having the market hold a favorable impression of the quality of her firm. Consequently, they infer that high-ability entrepreneurs are more drawn to eponymy than are low-ability ones. Based on this explanation, what is your prediction on a₁? Explain briefly. (b) [5 points] Given the information given above, do the authors of the paper have balanced panel data? Explain briefly. (c) [5 points] In the basic specification, there is no firm fixed effect. In the data, only 0.3 percent of firms change their eponymy status during the sample period. Can you conjecture why the authors did not include the firm fixed effect in their basic specification? Justify your answer.

Answer rating: 100% (QA)

ANSWER a Based on the signaling explanation proposed by Belenzon Chatterji and Daley 2017 we can predict that a the coefficient on the binary indicato... View the full answer